Reported earnings: SAR53.6 million, -2% Y-o-Y, +19% Q-o-Q, -7% versus EFGe Revenue: SAR283.6 million, +7% Y-o-Y, +4% Q-o-Q, -5% versus EFGe Operating profit: SAR55 million, -1% Y-o-Y, +20% Q-o-Q, -8% versus EFGe   Herfy reported 1Q2016 KPIs, posting flattish earnings of SAR53.6 million as some top-line growth was offset by margin pressure. Earnings missed our forecast by c7% on a combination of slightly lower-than-expected revenue and margins. Revenue was up 7% Y-o-Y and came in 5% below our forecast, likely on weaker-than-expected restaurant yields (we estimate an c10% Y-o-Y decline). Management had noted previously an industry-wide decline in LFL sales due to competition and slowing consumer demand. Worth noting is that 1Q2015 was a relatively strong quarter, with revenue up 23% Y-o-Y, partly due to the one-off two-month bonus ordered by the new King. Herfy opened nine new restaurants during the quarter (total of 309 locations, assuming no closures during the quarter), putting the company on track to launch a total of 30 new locations during 2016. The company also opened two new locations in April to date. Gross profit was flattish (-3% Y-o-Y) at SAR84.3 million and missed our forecast (-11% versus EFGe). Gross margin continued its contractionary trend since 4Q2014, falling c3pp Y-o-Y to 29.7% (lower than our 32.0% forecast) on higher store labour costs (likely as the company continued to boost Saudisation) and electricity and fuel expenses (post recent subsidy reforms). SG&A costs fell 6% Y-o-Y, with operating profit also flattish (-1% Y-o-Y; -17% versus EFGe), limiting the miss to 8% versus our estimate. Accordingly, EBIT margin narrowed a softer c160bps Y-o-Y to 19.4% and was lower than our 20.1% forecast.   The results set is decent, in our view, given the ability to grow revenue Y-o-Y from a high comparable base and SG&A cost controls. We remain Buyers of Herfy, as we expect earnings growth to improve, as revenue momentum accelerates as newly-launched locations beginning to garner higher footfall and reach a more profitable point in the maturity cycle. (Earnings release, Nada Amin, Hatem Alaa)